REITs, Explained: Property as a Dividend Machine

A REIT, real estate investment trust, is a company that owns income-producing property and is required to pay out the great majority of its taxable income, typically at least 90 per cent, as dividends, in exchange for paying little or no corporate tax. The structure turns buildings into tradeable income streams: offices, warehouses, flats, shops, data centres and mobile towers, bought and sold like shares.

How to read them

REITs are judged on funds from operations (FFO) rather than ordinary earnings, because depreciation makes property profits look artificially small. The other essentials are occupancy, rent growth, lease length and leverage. Sector matters enormously: a data-centre REIT rides the AI build-out while an office REIT fights remote work, and the label covers both.

The rate connection

REITs are structurally rate-sensitive twice over. They borrow to own buildings, so financing costs feed straight into distributable income; and their dividend yields compete with bonds, so when risk-free yields rise, REIT prices typically fall until the yield gap is restored. This is why REIT indices often trade like long-duration bonds with a property cycle attached, and why rate-cut expectations are usually the sector’s strongest tailwind.

What they offer a portfolio

For investors, REITs provide property income without buying property: liquidity, diversification across hundreds of buildings, and mandatory payouts. The costs are equity-market volatility, sensitivity to the rate cycle, and, in stressed moments, correlations that rise exactly when diversification is wanted most.